Auto supplier Garrett Motion Inc. said Sunday it filed for Chapter 11 bankruptcy protection as it struggled with heavy debt amid the COVID-19 pandemic and a dispute with former parent Honeywell International Inc. over asbestos liabilities.
Garrett Motion said it entered into a "stalking horse" purchase agreement with private equity firm KPS Capital Partners for $2.1 billion.
The stalking horse agreement would imply that any other bids that come in must be higher than the offer made by KPS. The agreement is subject to court approval.
Garrett Motion, which makes automotive turbochargers, said it's seeking court's approval for a $250 million debtor-in-possession financing facility. Throughout the reorganization process, Garrett Motion expects to operate without interruption.
The company listed both assets and liabilities in the range of $1 billion and $10 billion, according to a filing with the U.S Bankruptcy Court for the Southern District of New York.
Garrett Motion's largest customer is Ford Motor Co., which accounted for 12 percent of 2019 sales, according to its annual report.
Automakers and suppliers have been hit by the coronavirus outbreak, which led to shuttered vehicle factories and disrupted supply chains.
"...the financial strains of the heavy debt load and liabilities we inherited in the spin-off from Honeywell -- all exacerbated by COVID-19 -- have created a significant long-term burden on our business," CEO Olivier Rabiller said in a statement.
The company has accused Honeywell of devising the spinoff of Garrett Motion, its transportation systems business, in late 2018 to offload Honeywell's liabilities related to asbestos-exposure claims.
Honeywell said Garrett was pursuing a bankruptcy "to avoid the legitimate and reasonable financial commitments" the company assumed as part of its spinoff in 2018.
"Garrett always has been capable of fulfilling those obligations with the assets it received in the spinoff," Honeywell said in a statement, adding that it was committed to engaging in a dialogue with the firm.
Garrett Motion said expects to emerge from the Chapter 11 and complete the sale process in early 2021.
Morgan Stanley and Perella Weinberg Partners served as financial advisers to Garrett Motion.
Sullivan & Cromwell LLP and Quinn Emanuel Urquhart & Sullivan LLP were legal advisers. AlixPartners served as Garret Motion's restructuring adviser.
Garrett Motion, of Rolle, Switzerland, ranks No. 67 on the Automotive News list of top 100 global suppliers with 2019 sales to automakers of $3.25 billion.
Automotive News contributed to this report.